U.S. personal income stalls as PCE inflation rises above Fed target

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Highlights

Headline PCE inflation rises 0.40% month-over-month and reaches 3.77% year-over-year in April, exceeding the Federal Reserve's 2% target.
Real personal consumption expenditures climb 0.11%, or $18.08 billion, in April, while personal income remains flat and real disposable personal income per capita drops 0.50%.
Real GDP grows 1.62% from 2025 Q4 to 2026 Q1, with current-dollar GDP up 5.15% ($396.938 billion) to $31.819 trillion, despite tightening household balance sheets.

April spending and inflation trends

As reported by the Joint Economic Committee, its Monthly Expenditures Update for April says headline personal consumption expenditures price index inflation rises 0.40% from March to April, while core PCE inflation, excluding food and energy, increases 0.24%. On a year-over-year basis, headline PCE inflation reaches 3.77% from April 2025 to April 2026, and core PCE inflation stands at 3.29%, both above the Federal Reserve's 2% target.

Consumer activity also continues to increase during the month. Real PCE rises 0.11%, or $18.08 billion, with real spending on services up 0.19%, or $21.47 billion, and real spending on goods up 0.08%, or $4.7 billion.

At the same time, personal income remains essentially flat month over month, unchanged by $19 million. Real disposable personal income per capita decreases 0.50%, indicating that after-tax income is rising more slowly than prices, while the nominal personal savings rate falls 0.6 percentage points to 2.6%.

Broader U.S. growth backdrop

The committee also releases its GDP Update for the second estimate of first-quarter 2026 output, adding broader context to the April consumer data. Real GDP growth from 2025 Q4 to 2026 Q1 increases 1.62%, while current-dollar GDP rises 5.15%, or $396.938 billion, to $31.819 trillion.

The combination of slower household income growth, firmer consumer spending and inflation above target points to continued pressure on U.S. consumers even as the economy expands. For businesses and policymakers, the data suggests demand remains resilient, but household balance sheets are becoming tighter as savings decline.

In our earlier coverage of the widening gap between core PCE and core CPI, we highlighted that April’s PCE inflation readings remained well above the Federal Reserve’s 2% target, complicating the case for near-term rate cuts. We also noted that differences in category weightings—along with AI-related investment and select services components—can keep core PCE running hotter than CPI, intensifying internal policy debate at the Fed.

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